DBRS Places Residential Capital, LLC Issuer Rating of “C” Under Review Positive

DBRS Inc. (DBRS) has today placed the ratings of Residential Capital, LLC (ResCap or the Company), including its Issuer and Long-Term Debt rating of ‘C’ Under Review with Positive Implications.

DBRS’s rating action recognizes the positive momentum at ResCap, including the noteworthy progress the Company has made in de-risking the balance sheet and restoring profitability. The action also takes into account the recently changed strategic importance of the Company to Ally Financial Inc. (rated BB (low) by DBRS), ResCap’s parent. Since 2009, management has taken well orchestrated and quite costly measures to right size and de-risk ResCap. These measures included taking sizable marks on the legacy held-for-sale portfolio, selling non-core assets and business lines, and more recently reaching settlements of rep & warranty claims with Fannie Mae (4Q10) and Freddie Mac (1Q10). As a result of these actions, ResCap has dramatically reduced its exposure to additional losses from the legacy mortgage portfolio.

Importantly, after three consecutive years of generating significant losses, ResCap returned to profitability in 2010, as the Company benefited from the increase in mortgage refinancing activity and market fundamentals. Indeed, the improvement in secondary prices for mortgage assets in 2010 resulted in ResCap recognizing gains on the sale of previous marked legacy portfolios benefiting earnings.

During the review process, DBRS will consider ResCap’s strategy to focus on conforming mortgage origination and servicing and its ability to generate a level of earnings to absorb credit costs and grow capital on its own. Moreover, the review will focus on the Company’s funding and liquidity requirements, including the ability to fund growth in new lending volumes. Importantly, DBRS will ascertain ResCap’s exposure to remaining legacy assets, the potential for losses as a result of a return to marked deterioration in U.S. home prices, and the ability of the Company to withstand such a scenario. Given the momentum in the business and the aforementioned actions taken by management, upon conclusion of its review DBRS sees the potential for an upward adjustment to the ratings of multiple notches.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Finance Companies Operating in the United States, which can be found on the DBRS website under Methodologies.

The sources of information used for this rating include the issuer and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Lead Analyst: Steven Picarillo
Rating Committee Chair: Alan G. Reid

Initial Rating Date: 9 June 2005
Most Recent Rating Update: 5 January 2009

For additional information on this rating, please refer to the linking document below.